Multiple automakers, including legacy auto giant Ford (NYSE:F), have slashed the prices of their electric vehicles in China since Elon Musk-led Tesla (NASDAQ:TSLA) triggered a price war by cutting prices for its Model 3 and Model Y vehicles. Auto companies are trying to spur demand amid a weak economy in China and rising competition. Additionally, China has ended subsidies for the purchase of new energy vehicles. Consequently, automakers are trying to attract customers with notable discounts.
Moreover, some EV makers are trying to attract buyers through promotional offers ahead of next month’s Shanghai car show, where the latest models are generally launched.
Intense Price War
Foreign automakers are finding it difficult to compete with China’s local EV makers,which have emerged rapidly in recent years. As per Reuters, earlier this month, Ford started offering a discount of 40,000 yuan (over $5,700) on its Mustang Mach-E electric SUVs in China until the end of April. Also, the Detroit-based carmaker reduced the prices of Mach-E by as much as $5,900 in the U.S. market in January, following Tesla’s price cuts for the Model Y crossover.
Ford seems to be trying to revive demand for Mach-E in China. Citing industrial data, the Wall Street Journal noted that only 84 of the standard version of the battery-powered Mustang Mach-E SUV were sold in China in February, significantly down from about 1,500 in December. It’s worth noting that the spike in December sales was triggered by about a 9% discount on the original price.
China, the world’s largest car market, is not only witnessing EV price discounts but also price cuts on gas-powered vehicles. As per the Wall Street Journal, some dealers of General Motors’ (NYSE:GM) Cadillac are offering short-term discounts of about 25% on the CT5 combustion-engine sedan. General Motors has been losing ground in China over recent years. A recent CNBC report noted that GM’s market share (including joint ventures) in China fell from about 15% in 2015 to 9.8% in 2022.
Meanwhile, last week, the joint venture between Germany’s Volkswagen (DE:VOW) and China’s SAIC Motor started offering 15,000 Yuan to 50,000 Yuan in discounts until April 30 for its full lineup of gas-powered and EVs. Daiwa Capital Markets analyst Kelvin Lau highlighted that gas-powered car dealers intend to clear out about 500,000 vehicles in their inventory, including older models that won’t meet tighter emission standards that will become effective in July.
Aside from foreign carmakers, several Chinese auto companies are also lowering prices to boost demand. Overall, the price war could shrink the margins of automakers at a time when they are already facing high input costs and subdued demand.
Is Ford a Good Stock to Buy?
Ford is aggressively pursuing its EV growth strategy. Nonetheless, a tough macro backdrop and the ongoing price war could hit its margins. Wall Street is sidelined on Ford, with a Hold consensus rating based on four Buys, seven Holds, and three Sells. The average Ford stock price target of $13.08 suggests 11.6% upside potential.
Conclusion
Many automakers have joined the price war started by Tesla to boost demand. These price wars could significantly hurt the profitability of carmakers if they don’t see a substantial rise in volumes following the price cuts.
